10/29/2026
Daily Market Wrap - 10/29/2026
Thursday...
Stocks have ended the day lower. The Dow is -132.54 at 52342.56 and the S&P 500 is -23.59 at 7720.39. Mortgage Bonds are higher on theday.
The 7-Year Note Auction was met with average demand. MBS Highway's Bill Hagmann grades the auction a C. The bid to cover of 2.46 was justa hair under the one year average of 2.48. Direct and indirect bidders took 90.6% of the auction compared to 88.3% in the previous 12.
Fed Meeting Breakdown
The Fed left rates unchanged, as expected, but there were 2 dissenters – Lisa Cook and Beth Hammack, who have been two of the more hawkish Fed members.
Warsh’s press conference may have been less hawkish than feared. At the previous meeting, he sounded more hawkish and said he would be hard pressed to say financial conditions were tight, signaling that the Fed had work to do to fight inflation.
During this press conference, he acknowledged that since September, he started to see changes in financial conditions and some tightening. He said that market participants are becoming somewhat more discerning in capital allocations and that AI funding costs were also impacted by a higher Fed Funds Rate.
Bottom line – He acknowledged some progress and while a December hike is still expected based on the Fed Futures, he was noncommittal and said it really depends on the data. We also believe it may depend on stock market performance as well.
Warsh announced some changes for 2027 and 2028. In 2027, the Fed will still meet eight times, but only seven will be policy meetings, wherethe Fed releases a statement and potentially changes rates. The other meeting will be strategic in nature. Of course, the Fed could always holdan emergency meeting in between.
In 2028, the Fed will only have six policy meetings and two strategic ones.
Personal Consumption Expenditures (PCE)
The September Personal Consumption Expenditures (PCE) inflation report was released this morning, showing that headline inflation rose 0.5%last month, which was as expected. Year over year, inflation rose from 3.4% to 3.6%, but it was one one-thousandth away from being rounded up to 3.7%. Getting a little lucky there likely helped, as a rise to 3.7% would have looked much worse in the market's eye.
The most important core reading, which strips out food and energy prices, rose 0.3%, which was also inline with estimates. Year over year, coreinflation rose from 3% to 3.1%, as expected.
The quarterly inflation figures, released as part of the GDP report, may be getting the market’s attention. Q3 PCE inflation rose 2.1%, downsharply from 5% in the previous quarter and below estimates of 3.4%.
The savings rate fell from 4% to 3.8%, which is the lowest level since 2008 and is something to keep an eye on.
Q3 GDP First Reading
Q3 GDP rose at a 3.4% annualized rate, above the estimate of 3.2% and up from 2.2% in Q2. A big reason was investment in AI data centers and consumer spending. Although for consumer spending, a lot of the spending was on health care and not necessarily discretionary items.
Technical Analysis
Mortgage bonds rallied today, with the 10-year Treasury yield falling back below 5%, despite a stronger than expected 3.4% reading on thirdquarter GDP and a mediocre 7-year Treasury note auction. A steep selloff in tech stocks, led by Alphabet’s worst day on record, sent investorsinto the safety of bonds, while the Fed’s preferred inflation gauge, Core PCE, rose 0.3% in September, in line with expectations.
Mortgage Bonds tested the ceiling at 101.71, which has held for now. If MBS are able to get above this level there is another ceiling of resistance close by at the 50-day Moving Average.
The 10-year has broken out of its very tight range between 5% and the 50-day Moving Average, to the downside. The next stop is at 4.92%.
Closing position: Floating
